Microsoft Touts Managed Services for Hosting Partners

Microsoft encouraged its hosting partners to move more into the "managed services" realm, offering incentives toward that end at last week's Microsoft Hosting Summit 2009 event.

"There is a tremendous opportunity for hosting providers to partner with Microsoft to transition from mass-market hosting into higher-margin managed services to deliver compelling new solutions to their customers," said John Zanni, general manager of the worldwide Software plus Services industry for Microsoft's Communications Sector, in a prepared statement.

Zanni delivered the keynote address at the invitation-only meeting in Bellevue, Wash. He described managed hosting as offering better profit margins and better growth prospects (better than the current "10 percent" figure) than operations lower on the value chain, according to a blog account describing the keynote. "As Zanni puts it, the company wants to focus on driving new sources of revenue for a business with diminishing margins (even if the market is growing)," the blog stated. "Managed hosting, in addition to having better margins, is seeing more growth too, more in the 25 percent year-over-year range."

The incentives that Microsoft announced on Wednesday for its hosting partners included a Services Provider License Agreement (SPLA) discount, plus the rollout of a tool providing technical and marketing support for hosting operations called Dynamic Data Center Tool Kit. Microsoft's partners have been using the toolkit in pilot trials, but it had its debut at the Hosting Summit. The kit includes sample code to "rapidly build and launch managed services powered by Windows Server 2008 Hyper-V and Microsoft System Center," according to Microsoft's announcement.

Those products are offered to partners through the SPLA, along with other Microsoft solutions, including Dynamics, Exchange, SharePoint and SQL Server. SPLA licensees hold the license for three years. Microsoft sweetened the deal by announcing that partners can now pay annually instead of monthly for SPLA, and get a 12 percent price discount.

Microsoft also added two new SKUs ("stock keeping units" or inventory identifiers) to the SPLA product list: Windows Server 2008 Anonymous with Hyper-V and Windows Server 2008 Anonymous without Hyper-V.

Microsoft's discount for its hosting partners is "good for server licensing," according to Kevin Doherty, CEO of Honolulu-based PHASE 2 International, in an e-mailed response, although Doherty doesn't consider PHASE 2 to be a pure-play Microsoft hosting provider. Instead, the Microsoft Gold Certified partner provides best-of-breed hosted solutions for its enterprise and small-to-medium business customers worldwide.

PHASE 2 uses Microsoft Windows Server 2008 with Hyper-V along with Microsoft System Center Virtual Machine Manager, but just using virtualization to provide hosting services isn't PHASE 2's main goal.

"We are not in the business of simply hosting VMs for customers," Doherty said. "This is commodity business that is not part of our strategy." He added that partners could benefit more if Microsoft relaxed its licensing restrictions on virtualization.

Microsoft has been building out its own servers and hosting capacity, and announced its Windows Azure cloud computing initiative in November. In working with its hosting partners, Microsoft appears to be driving them toward customers with less than 5,000 seats who have more complex needs to support, explained Christopher Voce, an analyst with Forrester Research.

"Microsoft has made a big splash into the hosting market, particularly around their BPOS [Business Productivity Online Suite], which uses a combination of Exchange, SharePoint and Office Communications Server," Voce said. "And, of course, that creates a bit of conflict with their partners who have been hosting these products for their own customers for years."

Microsoft is targeting the mass market by running services in the cloud or a multi-tenanted environment, and it can do it "at a price point that is unachievable by the individual partner," Voce said. Microsoft still needs its partners, particularly to tackle the complexity of working with smaller businesses -- a more expensive proposition for Microsoft, Voce added.

Voce described Microsoft's discount announcement as a concession to its hosting partners as Microsoft targets larger enterprises. Microsoft did something similar in 2001 when it took control of Software Assurance licensing, which used to be an indirect sale by resellers. It created the role of the VAR as a concession to partners, Voce explained.

"If you're going to take with one hand, you have to give with the other," he said.